Obama Administration Works to Fix Health Insurance Co-Ops


By Stephanie Armour | January 21, 2016

WASHINGTON—An Obama administration official said Thursday the government is taking steps to help health cooperatives set up under the Affordable Care Act remain solvent, while seeking to recoup federal funds from those that failed.

The nonprofit co-ops were established to offer health insurance to consumers on the health law’s marketplaces and were intended to lower costs by giving established insurers more competition. But more than half of the 23 operating state co-ops failed after receiving about $1.17 billion in federal loans.

Andy Slavitt, acting administrator at the Centers for Medicare and Medicaid Services, told a Senate committee that the agency is working with the Justice Department and taking legal actions to collect the federal moneys in some cases.

Co-op officials have said they suffered financially, in part because the law restricted their ability to acquire capital or solicit private-capital investment.


“Our goal at CMS is to make sure the programs we are charged with are working the way they should,” he said.

Some Republicans—calling the co-op program a failure that wasted taxpayer money—pressed Mr. Slavitt on how so many of the nonprofits could have collapsed.

The committee’s chairman, Sen. Orrin Hatch (R., Utah), said the co-op program was poorly designed and there were inadequate safeguards to protect taxpayer money. He also questioned the co-ops accounting practices, specifically whether loans were recorded as assets.

“CMS has encouraged the co-ops to cook the books,” Mr. Hatch said.

Mr. Slavitt didn’t respond directly to that comment. Agency officials have earlier testified that CMS and states review every loan-conversion request—an accounting change that allows co-ops to move start-up loans from the liability side of balance sheets. Co-ops are still subject to repayment and reporting requirements.

Mr. Slavitt said three-quarters of consumers who were covered by co-ops that failed have now been able to maintain coverage through new plans. He also outlined steps being taken to help ensure the financial health of the surviving organizations, including a financial audit of the remaining co-ops after the end of the current open-enrollment period wraps up Jan. 31.

The agency will hold a March meeting with co-op leaders and others involved regarding a formula that spreads out risk among insurers. That program, known as risk-adjustment, distributes money from plans with healthier and younger enrollees to plans with sicker and older customers.

Co-op officials said the formula used to determine payments left them and smaller insurers at a financial disadvantage compared with larger insurers, and they have been pressing the Obama administration to make revisions they say are necessary to ensuring their survival going forward.

Write to Stephanie Armour at stephanie.armour@wsj.com

Corrections & Amplifications:
More than half of the 23 operating state co-ops failed after receiving about $1.17 billion in federal loans. A graphic with an earlier version of this article incorrectly stated that they received more than $1.5 billion. (Jan. 21, 2016)